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Other Recent Supreme Court Rebukes Of Enforcement Theories Relevant To FCPA Enforcement

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U.S. v. McDonnell – the unanimous Supreme Court decision earlier this week vacating the former Virginia governor’s criminal convictions – was relevant to Foreign Corrupt Practices Act enforcement because the key issue in McDonnell , the proper meaning of the term “official action,” is term that also appears in the FCPA’s anti-bribery provisions.

In the FCPA’s nearly 40 years of existence, the Supreme Court has never addressed an FCPA issue. It is unlikely that the Supreme Court will address an FCPA topic anytime soon because of how the government has chosen to enforce the FCPA (the vast majority of corporate enforcement actions are resolved without any meaningful judicial scrutiny and the vast majority of corporate enforcement actions lack individual prosecutions)

Thus, when thinking about how the Supreme Court might address certain FCPA issues, one has to analogize to other relevant Supreme Court decisions.

This post highlights other recent Supreme Court decisions, in addition to McDonnell, to rebuke enforcement theories relevant to FCPA enforcement.

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Friday Roundup

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From the dockets, you gotta be kidding me, it’s a numbers game, former DOJ FCPA Unit Chief Duross on …, scrutiny updates, a foreign official teaser, a bracket of a different kind, and an event notice. It’s all here in the Friday Roundup.

From The Dockets

Two developments in DOJ FCPA individual actions.

One the DOJ apparently wants you to do know about because it issued a press release, the other apparently not because there was no press release.

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Case Law Of Note

Judicial Decision

Judicial opinions construing the Foreign Corrupt Practices Act are rare. Thus, when they occur (even if only a trial court opinion on a pre-trial motion to dismiss) FCPA judicial opinions are worthy of note.

As highlighted in this prior post, in January 2015 the DOJ criminally charged Dmitrij Harder, the former owner and President of Chestnut Consulting Group Inc. and Chestnut Consulting Group Co., for allegedly bribing an official with the European Bank for Reconstruction and Development (“EBRD”).

The enforcement action was notable in that it invoked the rarely used “public international organization” prong of the FCPA’s “foreign official” element.

As highlighted here, in October 2015, Harder filed this motion to dismiss:  In summary fashion it stated:

“The Indictment fails to accurately allege the elements of a violation under the Foreign Corrupt Practices Act (“FCPA”) – it is devoid of any allegations that Mr. Harder paid an allegedly corrupt payment to a “foreign official,” fails to state required allegations when an allegedly corrupt payment is made to a third party, and impermissibly substitutes “public international organization” in the charging language against Mr. Harder. The FCPA counts should also be dismissed because the provision permitting the President to expand the term “foreign official” by identifying “public international organizations” as authorized by 15 U.S.C. § 78dd-2(h)(2)(B) is unconstitutional.”

In an unsurprising development given the procedural posture of the motion, last week Judge Paul Diamond (E.D. Pa.) denied the motion. It is believed to be the first judicial decision in FCPA history construing the rarely implicated “public international organization” prong of the FCPA’s “foreign official” definition.

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Other DOJ Defeats When Asserting Aggressive Enforcement Theories Against Foreign Nationals

You be the Judge

In the minds of some, the many recent DOJ defeats when put to its burden of proof in individual Foreign Corrupt Practices Act enforcement actions are of little consequence.

Some have written off the DOJ’s struggle in the recent Sigelman action because it was the result of a key witness admitting he gave false testimony during the trial.

Others have written off the DOJ’s ultimate defeat in the enforcement action against Lindsey Manufacturing and two of its executives because it was, most directly, the result of numerous instances of prosecutorial misconduct.

To some, the DOJ’s defeat in the O’Shea enforcement action  was no big deal because it was, most directly, the result of a key witness knowing “almost nothing” in the words of the judge even though the judge admonished the DOJ that it “shouldn’t indict people on stuff you can’t prove.”

The DOJ’s defeat in the Africa Sting cases, well, where do you even begin with that one.

However, you add up these defeats of little consequence in the minds of some, and the end result is a big consequence:  the DOJ often loses when put to its burden of proof.

The most recent example occurred in a pre-trial ruling in the DOJ’s FCPA prosecution of Lawrence Hoskins. The DOJ’s defeat was not because the quality of its evidence, not because of the DOJ’s conduct in the investigation, but rather a flawed legal theory.

The same people who are likely to view the above DOJ defeats as having little consequence are also likely to view the DOJ’s pre-trial defeat in Hoskins as an anomaly.

Except that it is not.

As summarized in this post, in three prior instances federal court judges have rebuked DOJ enforcement theories in FCPA enforcement actions involving foreign national defendants.

As highlighted in this prior post, in U.S. v. Castle, both the N.D. of Texas and the 5th Circuit ruled against the DOJ as a matter of law regarding the issue of whether “foreign officials” (in the case Canadian nationals) who are excluded from prosecution under the FCPA itself, could nevertheless be prosecuted under the general conspiracy statute (18 USC 371) for conspiring to violate the FCPA.  The courts held that “foreign officials”  could not be prosecuted for conspiring to violate the FCPA.  The rationale was that Congress, in passing the FCPA, only chose to punish one party to the bribe agreement and the DOJ could not therefore  ”override the Congressional intent not to prosecute foreign officials for their participation in the prohibited acts” through use of the conspiracy statute.  The court decisions were based in part on Gebardi v. United States, 287 U.S. 112, 53 S.Ct. 35, 77 L.Ed. 206 (1932), a case that also featured prominently in the recent Hoskins pre-trial ruling.

In U.S. v. Bodmer, 342 F.Supp.2d 176 (S.D.N.Y. 2004), Judge Shira Scheindlin addressed the question “whether prior to the 1998 amendments, foreign nationals who acted as agents of domestic concerns, and who were not residents of the United States, could be criminally prosecuted under the FCPA.”  Judge Scheindlin concluded that the FCPA’s language, as it existed prior to the 1998 amendments, was ambiguous and she thus resorted to legislative history.  Judge Scheindlin further commented in dismissing the FCPA charges against Bodmer (as Swiss national) as follows.  “After consideration of the statutory language, legislative history, and judicial interpretations of the FCPA, the jurisdictional scope of the statute’s criminal penalties is still unclear.” Thus, the rule of lenity required dismissal according to Judge Scheindlin.

As highlighted in this prior post, in the Africa Sting enforcement action Judge Leon dismissed a substantive FCPA charge against Pankesh Patel (a U.K. national) based on the DOJ’s enforcement theory that Patel was subject to the FCPA’s jurisdiction because he allegedly sent a DHL packing in furtherance of the bribery scheme from the U.K. to the U.S.  Although Judge Leon did not issue a formal written decision, the trial court transcript is clear that he disagreed with the DOJ’s legal theory.

Granted the DOJ’s enforcement action against Hoskins remains active, but at present the DOJ is believed to be 0-4 when asserting aggressive FCPA enforcement theories against foreign nationals.

To some, this is of little consequence.

The rule of law would disagree.

It is interesting to note that the DOJ of course asserts aggressive FCPA enforcement theories against foreign companies as well.However, no foreign company has challenged the DOJ in these enforcement actions – it is simply easier, more certain and more efficient to roll over, play dead, and agree to resolve the enforcement action.

Yet, if certain foreign companies would have challenged the DOJ, the likely result in several enforcement actions may have been DOJ defeats.

The Importance Of The FCPA’s Legislative History

Congress

To some, the legislative history of the Foreign Corrupt Practices Act is not important.

However, there is one category of persons who rightly care about the motivations of Congress in passing the FCPA, the competing bills Congress considered in enacting the FCPA, and Congress’s intent as to various elements of the FCPA.

That group is federal court judges.

As readers no doubt know, judicial scrutiny of FCPA enforcement theories is sparse.  Yet when it does occur, a common thread in most FCPA judicial decisions is discussion and analysis of the FCPA’s legislative history, often but not exclusively because the judge found various provisions of the FCPA ambiguous.

The recent decision (see here for the prior post) by  Judge Janet Bond Arterton (D. Conn.) trimming the DOJ’s FCPA enforcement action against Lawrence Hoskins by granting in part his motion to dismiss and denying a DOJ motion in limine was based primarily on the FCPA’s legislative history and what it revealed about Congress’s intent in capturing a certain category of defendant.

Likewise, although the 11th Circuit completely bungled its analysis of the FCPA’s legislative history relevant to the “foreign official” element in its 2014 U.S. v. Esquenazi opinion (see this article at pgs. 24-42 for a detailed analysis), the opinion nevertheless contained much discussion of the FCPA’s legislative history.

Several FCPA commentators object to the notion that the FCPA is ambiguous or that resort to legislative history is important. This Forbes article titled “Top 5 Misconceptions About The FCPA” set out to “clear up a few misconceptions about the FCPA.”  Number one on the list of misconceptions was that ‘the FCPA is a vague statute.”  The FCPA Blog has long maintained (see here and here for examples) that FCPA lawyers say that the law is “complicated, technically challenging, obscure, poorly drafted and badly organized” but warns,” don’t believe it. There’s no evidence in the record that judges or juries have any trouble understanding the FCPA.”

The above protestations and observations are just plain wrong.  There is abundant ”evidence in the record” that the FCPA is an ambiguous statute and/or that the FCPA’s legislative history is important.

In addition, to the recent Hoskins and Esquenazi cases, this post summarizes the many other instances in which federal court judges have found various provisions of the FCPA to be ambiguous and/or have consulted the FCPA’s legislative history.

In SEC v. Straub,  921 F.Supp.2d 244 (S.D.N.Y. 2013) Judge Richard Sullivan (see here for the prior post) found the FCPA’s jurisdictional element ambiguous and thus consulted the legislative history.

In SEC v. Jackson, 908 F.Supp.2d 834 (S.D.Tex. 2012)Judge Keith Ellison consulted the FCPA’s legislative history regarding: the need to identify the “foreign official,” the facilitation payments exception, and the corrupt intent element.

In U.S. v. Jensen, 532 F.Supp.2d 1187 (N.D. Cal. 2008), Judge Charles Breyer stated as follows regarding  § 78m(b)(5) which makes “knowing” violations of the FCPA books and records and internal control provisions a crime.  “Because the plain language of § 78m(b)(5) is not unambiguous, the Court turns to legislative history.”

In U.S. v. Kozeny, 582 F.Supp.2d 535 (S.D.N.Y. 2008), Judge Shira Scheindlin consulted the legislative history in a decision concerning the FCPA’s local law affirmative defense.

In U.S. v. Kozeny, 493 F.Supp.2d 693 (S.D.N.Y. 2007), Judge Scheindlin stated as follows concerning the statute of limitations applicable to FCPA criminal violations.  “I find that [18 U.S.C. § 3282] is ambiguous, and turn to its legislative history for guidance on its proper interpretation.”

In U.S. v. Bodmer, 342 F.Supp.2d 176 (S.D.N.Y. 2004), Judge Scheindlin addressed the question “whether prior to the 1998 amendments, foreign nationals who acted as agents of domestic concerns, and who were not residents of the United States, could be criminally prosecuted under the FCPA.”  Judge Scheindlin concluded that the FCPA’s language, as it existed prior to the 1998 amendments, was ambiguous and she thus resorted to legislative history.  Judge Scheindlin further commented in dismissing the FCPA charges against Bodmer as follows.  “After consideration of the statutory language, legislative history, and judicial interpretations of the FCPA, the jurisdictional scope of the statute’s criminal penalties is still unclear.”

In Stichting v. Schreiber, 327 F.3d 173 (2d Cir. 2003), the Court stated as follows.  “It is difficult to determine the meaning of the word “corruptly” simply by reading it in context. We therefore look outside the text of the statute to determine its intended meaning. […]  (“Legislative history and other tools of interpretation may be relied upon only if the terms of the statute are ambiguous.”

In U.S. v. Kay, 200 F.Supp.2d 681 (S.D. Tex. 2002), Judge David Hittner concluded that the FCPA’s “obtain or retain business” element was ambiguous and thus turned to an analysis of the legislative history.  On appeal, the Fifth Circuit (see 359 F.3d 738 (5th Cir. 2004)) likewise stated as follows prior to an extensive review of the FCPA’s legislative history.

“[T]he district court concluded that the FCPA’s language is ambiguous, and proceeded to review the statute’s legislative history.  We agree with the court’s finding of ambiguity for several reasons. Perhaps our most significant statutory construction problem results from the failure of the language of the FCPA to give a clear indication of the exact scope of the business nexus element; that is, the proximity of the required nexus between, on the one hand, the anticipated results of the foreign official’s bargained-for action or inaction, and, on the other hand, the assistance provided by or expected from those results in helping the briber to obtain or retain business. Stated differently, how attenuated can the linkage be between the effects of that which is sought from the foreign official in consideration of a bribe (here, tax minimization) and the briber’s goal of finding assistance or obtaining or retaining foreign business with or for some person, and still satisfy the business nexus element of the FCPA?”

In U.S. v. Blondek, 741 F.Supp. 116 (N.D.Tex 1990), Judge Harold Sanders consulted the FCPA’s legislative history in concluding that “foreign officials” can not be charged with conspiracy to violate the FCPA.

To some, the FCPA’s legislative history is nothing more than a history lesson.

However, federal court judges who interpret the FCPA in the rare occasions they are given an opportunity to do have consistently reminded us otherwise.

This is why the Story of the FCPA (see here for the article) remains important today.

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